Following another month of contraction in the shadow banking system and the recently resumed downtrend in Chinese stocks and yuan, investors are bracing for the monthly deluge of economic data (ex-GDP) to judge just how much impact Trump’s trade wars are having (or just what Xi is allowing the world to see).
As we detailed earlier, despite Beijing’s desperation to inject more credit into its financial system and failing that, to at least give the impression it is doing that – and while October is typically a slow month for Chinese credit – growth in key gauges such as total social financing and money supply fell to record lows, reinforcing views that policymakers will need to step up efforts to revive flagging investment.
In fact, China’s outstanding total social financing (TSF) slowed to 10.2 percent from a year earlier, another all-time low suggesting the increased lending barely compensates for shrinking “shadow” loans.
But, while the continued contraction of China’s credit impulse would suggest economic slowdown, one can never be so sure when it comes the managed minutia in the red ponzi’s macro data:
China’s September activity data didn’t show any meaningful pick-up in government spending, but infrastructure remains one important area of policy support and is expected to rise in the coming months, said Bloomberg Economics’ Chang Shu.
And as we detailed above, credit data released late yesterday is clouding the outlook of today’s numbers. All of the major money supply indicators (M2, new yuan loans and aggregate financing) are underperforming compared to market consensus.
So here is the October data:
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China Retail Sales MISS +8.6% YoY (+9.2% YoY exp, +9.2% YoY prior)
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China Industrial Production BEAT +5.9% YoY (+5.8% YoY, +5.8% YoY prior)
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Fixed Asset Investment BEAT +5.7% YoY (+5.5% YoY exp, +5.4% YoY prior)
And the newly added property investment annual growth, given the fact that real estate sector is a key driver to China’s economy growth. It doesn’t have a median estimate, just like surveyed jobless rate.
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Property Investment SLOWED +9.7% YoY (+9.9% YoY prior)
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Surveyed Jobless Rate MEET 4.9% (4.9% prior)
As a reminder, China’s economy grew at 6.5% in 3Q – the slowest since the aftermath of the global financial crisis in 2009 – and this data suggests Q4 is not starting off so well.
For a nation transitioning to a consumptive economy, the tumble in Retail Sales growth is bad news (near the weakest since May 2003 and below all economists’ estimates) but Industrial production is holding up, as is investment spending – so there is an indication there that the old standby, infrastructure, is supporting growth.
Natixis Asia’s Senior Economist for Emerging Asia Trinh Nguyen tweets on China retail sales slowdown:
“Consumption has been a key anchor to the economy & its slowdown means that it isn’t just investment that is slowing.”
Bloomberg’s Enda Curran points out that the consumer slowdown builds on a narrative that the trade war is starting to have a material impact on sentiment. It’s worth noting, even as Alibaba’s singles day extravaganza hit another record, the pace of growth slowed, prompting some economists to say it’s evidence of softening demand.
That may explain why China’s Internet censors have been cracking down. The Financial Times reported that media have been ordered not to use “trade war.”
It seems the slowing economy is “Made in China” due to domestic consumption, rather than the questionable trade war, as Bloomberg’s Chris Anstey notes, the big takeaway for me is that the worries over consumer spending that have emerged from corporate earnings reports in recent weeks have been validated in the official monthly data here.
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